Spring is graduation season, a time for flinging mortarboards to the sky and framing those hard-earned diplomas. But it's also a time of uncertainty for many grads. What will they do? Where will they live? What will the real world be like?
Saying hello to these grown-up responsibilities often means saying goodbye to their parents' health insurance for many young adults. Each state has its own regulations outlining when young people must be removed from these insurance plans, and in several states, that end point is linked to student status. But for many of these new graduates, it will be a struggle to find that first full-time job, complete with benefits like health coverage. Some might pursue unpaid internships and part-time retail work in the meantime, which leaves these young people with a big decision: Should they purchase individual health insurance, which can be extremely pricey? Or do they forgo health insurance altogether?
Statistics show that many young people go for the latter. According to the nonpartisan Commonwealth Fund, 13.2 million young adults aged 19 to 29 -- about 30 percent of that population -- lacked health insurance in 2007. Young people are one of the largest groups of uninsured in the country, and for some of them, that arrangement may work fine. The young, after all, are fairly healthy, but without insurance, they're only one car accident away from financial disaster. Without coverage to see a doctor about something small and routine, the problem could become quite big indeed by the time they finally get it checked out. And when a young, uninsured person shows up in a hospital emergency room, the bill has to be paid somehow. Usually, those people with insurance end up picking up the tab in the form of higher premiums.
In March 2010, President Barack Obama signed the Patient Protection and Affordable Care Act into law. The legislation is designed to lower the costs of health insurance for everyone, but there are some special provisions for these young adults beginning to make their way in the world. Best of all, these changes go into effect this year, not in 2014, when many of the act's provisions do. Class of 2010 (or anyone under the age of 26), read on to find out about your graduation present.
Extending Dependent Coverage
The new health care law includes a provision that allows young adults to stay on their parents' health insurance plans until they turn 26. The Obama administration estimates that about 1.2 million young adults will take advantage of the new rule, which provides young people with a nice cushion between the end of their education and their first real job.
The new policy is scheduled to go into effect Sept. 23, 2010, six months from the point that the bill was signed into law. However, the administration realized that would leave spring graduates in the lurch for a few months. Kathleen Sebelius, U.S. Secretary of the Department of Health and Human Services, called on insurance companies to begin honoring the new policy right away. To their credit, more than 65 insurers agreed. It was, after all, a money-saving move for them -- the administrative costs of de-enrolling and then re-enrolling the eligible young people have now been avoided.
Let's take a look at who's eligible for the extended coverage. The young adult must be under the age of 26, but he or she doesn't have to be listed as a dependent on the parent's tax forms. The young adult doesn't have to live in the parent's home, either, though adult children living across the country might want to explore how much help a regional plan will be to them. He or she may be married, but spouses and children of that young adult aren't eligible for coverage on the parent's plan. If the young adult takes a job that comes with health insurance, he or she is no longer eligible for coverage on the parent's plan, but that restriction is removed in 2014. At that point, those individuals under the age of 26 may elect to stay on their parent's plan, should they find the costs of their employer-based plan unacceptable; you may remember that in 2014, the requirement that all Americans carry health insurance takes effect.
Most employer-sponsored plans offer coverage to dependents, but there's no requirement for employers to do so. If a parent's current plan doesn't include coverage for dependents, then the insurer doesn't have to begin covering them now. All plans in the individual market, all new employer plans that include dependent coverage, and all existing plans with dependent coverage are eligible, though. To find out if your insurer is one of those that agreed to begin covering young people immediately, talk with the insurance company or with your employer. Otherwise, insurance companies and employers should make you aware of a special enrollment period beginning on or after Sept. 23, 2010.
This probably sounds like a pretty sweet deal to Junior, but perhaps Mom and Dad want to know a little bit more about costs before calling the insurance company. We'll discuss financial information on the next page.
Costs of Extending Dependent Coverage
It's very hard for an individual to find reasonably priced health coverage, as a lone person represents high risk. An entire company of employees, however, allows the insurance company to spread that risk around. Each member of the group pays for the insurance, but not everyone will need to take advantage of the most expensive benefits. Adding young people to a risk group is desirable to insurers because they're generally very healthy.
That's why the Obama administration estimates that the costs of covering these young people up to age 26 will remain relatively low given how many people -- 1.2 million -- are entering the market. Parents adding a dependent back to their coverage will see their premiums rise 0.7 percent, according to the White House. In 2011, that translates to $3,380 per dependent ($3,500 in 2012 and $3,690 in 2013) [source: Pear]. Parents can't be charged more for those young adults that they add back to the plan; the law requires that prices be kept equal to those charged for other dependents who didn't lose coverage. Employees with individual plans won't see any additional costs, and the hope is that their premiums will be kept in check if fewer uninsured 20-somethings show up at the emergency room.
In addition to the peace of mind of knowing that their new graduate has health insurance, parents will receive tax breaks for the dependents on their plan who are under the age of 26. The cost of the premium can be deducted through the end of the taxable year in which the young adult turns 26. And turning 26 doesn't mean that a young adult will automatically be kicked off a parent's plan -- some states allow for adult children as old as 30 to retain coverage -- but that's the end of tax benefit and the federal requirement.
The government has provided information about the new regulations and tax rules to employers, but at least one company isn't happy about the change. Caterpillar, the construction equipment manufacturer, estimates that merely extending coverage to dependents would cost $20 million, in addition to the costs of enacting the rest of the legislation [sources: Jonsson, Tully]. It remains to be seen whether employers will opt out of providing coverage to dependents at all, but the White House remains hopeful that businesses will continue to do so. After all, a good health insurance plan has always been a way to attract the best and brightest workers.
To learn more about other provisions in the new health care legislation, see the links on the next page.
Related HowStuffWorks Articles
- Alonso-Zaldivar, Ricardo. "New Coverage for Young Adults Will Raise Premiums." Associated Press; ABC News. May 10, 2010. (May 10, 2010)http://abcnews.go.com/Business/wireStory?id=10605909
- Jonsson, Patrik. "Health care politics: Obama fast-tracks new law's coverage of adult children." Christian Science Monitor. May 8, 2010. (May 10, 2010)http://www.csmonitor.com/USA/Politics/2010/0508/Health-care-politics-Obama-fast-tracks-new-law-s-coverage-of-adult-children
- Kaiser Family Foundation. "Explaining Health Care Reform: Questions About the Extension of Dependent Coverage to Age 26." April 2010. (May 10, 2010)http://www.kff.org/healthreform/upload/8065.pdf
- Nicholson, Jennifer L., Sara R. Collins, Bisundev Mahato, Elise Gould, Cathy Schoen and Sheila D. Rustgi. "Rite of Passage? Why Young Adults Become Uninsured and How New Policies Can Help, 2009 Update." Commonwealth Fund. August 2009. (May 10, 2010)http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2009/Aug/1310_Nicholson_rite_of_passage_2009.pdf
- Pear, Robert. "Rules Let Youths Stay on Parents' Insurance." New York Times. May 10, 2010. (May 10, 2010)http://www.nytimes.com/2010/05/11/health/policy/11health.html
- Sebelius, Kathleen. "A Long Overdue Change to Help Young Adults Get Coverage." The White House Blog. May 10, 2010. (May 10, 2010)http://www.whitehouse.gov/blog/2010/05/10/a-long-overdue-change-help-young-adults-get-coverage
- Stawicki, Elizabeth. "Law allows young adults to stay on parents' insurance until age 26." Minnesota Public Radio. April 19, 2010. (May 10, 2010)http://minnesota.publicradio.org/display/web/2010/04/19/young-adults-parents-health-insurance/
- Tully, Shawn. "Documents reveal AT&T, Verizon, others, thought about dropping employer-sponsored benefits." Fortune. May 5, 2010. (May 10, 2010)http://money.cnn.com/2010/05/05/news/companies/dropping_benefits.fortune/
- "Young Adults and the Affordable Care Act: Protecting Young Adults and Eliminating Burdens on Families and Businesses Fact Sheet." The White House. May 10, 2010. (May 10, 2010)http://www.whitehouse.gov/sites/default/files/rss_viewer/fact_sheet_young_adults_may10.pdf
- "Young Adults and the Affordable Care Act: Protecting Young Adults and Eliminating Burdens on Families and Businesses Q&A." The White House. May 10, 2010. (May 10, 2010)http://www.whitehouse.gov/sites/default/files/rss_viewer/qa_young_adults_may.pdf